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Cite as: [1994] UKEAT 937_93_2405

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BAILII case number: [1994] UKEAT 937_93_2405

Appeal No. EAT/937/93

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 24 May 1994

Before

THE HONOURABLE MR JUSTICE MORISON

MRS P TURNER OBE

MR K M YOUNG CBE

COUNCIL OF THE ISLES OF SCILLY APPELLANT

(1) BRINTEL HELICOPTERS LTD

(2) R ELLIS & OTHERS RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

APPEARANCES

For the Appellant

For the Respondents

MR JUSTICE MORISON: The Isles of Scilly Council [IOSC] own St Mary's Airport, which is the principal airport on the Scilly Isles. For many years there has been a helicopter and fixed wing service between the mainland of England and the Isles. Prior to 1986, IOSC managed the airport subject to Licence and other restrictions imposed on any airport operator running a category 2 airport, which this was. Between 1986 and 1990 IOSC contracted out the management of the airport, including the air traffic control function, to the company which operated the scheduled helicopter services, which were taken over by British International Helicopters Limited [BIH], a part of the Maxwell empire. In 1990, IOSC sought competitive tenders for the management contract and a company called Airwork Limited [Airwork] won the tender and took over the management and air traffic control functions formerly undertaken by BIH.

The five relevant employees were initially employed by IOSC until 1986. They worked as fire-fighters and baggage handlers. From 1986 they were employed by BIH. After the management contract was awarded to Airwork, Airwork took over the whole of BIH's operation save for the fire-fighting and baggage handling which BIH continued to perform. Thus, BIH continued to employ the five applicants, and the fire fighting and baggage handling aspects were provided by BIH to IOSC pursuant to a draft contract made between the parties in about December 1990. Pursuant to those arrangements, BIH undertook to provide staff of sufficient numbers, experience and qualifications to provide an Airport Fire Service which was safe efficient and expeditious, and to provide sufficient personnel for a Baggage Handling Service 'on behalf of [IOSC]', subject to the conditions imposed by the Aerodrome Licence and Air Traffic Control Licence. BIH also undertook to provide appropriate protective clothing and training courses for the personnel working in the Airport Fire Service. In return, IOSC promised to supply for BIH's use fire engines, fire fighting equipment and the associated buildings, and to maintain and renew them as necessary; IOSC were to reimburse BIH for all the costs it incurred together with a handling fee of 10% of the invoiced sums. Under the draft agreement IOSC were entitled to appoint their own staff to replace anyone who had previously been employed by BIH on the fire fighting service but who left either due to retirement or, otherwise, voluntarily.

IOSC did appoint one and a half persons to assist in the fire fighting and baggage handling operations, although these persons were not replacements for leavers from BIH.

BIH, which subsequently changed its name to Brintel Helicopters Limited, went into administration and in 1992, for reasons which the Industrial Tribunal felt no need to explore, IOSC became dissatisfied with the service provided by BIH and resolved to and did terminate their arrangements by notice in November 1992 to take effect at the end of January 1993.

The five applicants were all made redundant by BIH and paid off. All of them had had long service first with IOSC and then with BIH. IOSC advertised for persons to do the work which these five had previously done and three of them were successful at interview and were engaged on terms which were different from those upon which they had been employed by BIH. Two of them were not taken on by IOSC. Each of the five men made applications to the Industrial Tribunal: the two who were not taken on said that they had been unfairly dismissed during a transfer of undertakings situation so that the provisions of Regulation 8 of TUPE applied so as to render their dismissals automatically unfair; the other three claimed that they were entitled to the same terms and conditions of employment with IOSC as they enjoyed with BIH, as their contracts of employment with BIH were transferred under Regulation 5 of TUPE.

Following a two day hearing before an Industrial Tribunal held at Truro, the Industrial Tribunal unanimously decided that each of the five applications succeeded. Their Decision was entered in the Register on October 1 1993 and IOSC appeal against that Decision by a Notice of Appeal dated November 11 1993.

Having set out the facts the structure of the Industrial Tribunal's decision is as follows:

They referred to the decisions of Kenny, Rask, Curling and Wren [paragraph 21].

They then considered what the position was before any change took place, that is before the end of January 1993. They concluded that the contractual arrangements between IOSC and BIH was not a labour only provision but that there was a sufficient economic entity in the fire fighting and baggage handling service for it to be an undertaking capable of being transferred [paragraphs 22 - 26].

They considered the position after the change. They concluded that the new crew's duties were virtually the same as before. They concluded thus [paragraph 27]:

"There are still the same staff, the same work, the same equipment, the same premises and the same customers, ie the travelling public."

Although the provisions of TUPE require there to be a transfer of an undertaking in the nature of a commercial venture, first the IOSC were an emanation of the State and the employees could rely directly on the Directive which did not contain those words; and secondly it seemed to the Industrial Tribunal that "this was probably a commercial venture in any event" [paragraph 29].

The Industrial Tribunal rejected the submission that there was no transfer because at all times IOSC were in control and therefore there was nothing transferred [paragraph 30].

Having found that there was a transfer to which the Regulations applied, they then dealt with each of the five individual cases and made awards against IOSC accordingly [paragraphs 31 -37] and dismissed the claims made against BIH [paragraph 38].

The appellants appeal solely on the ground that there was no transfer of an undertaking within the meaning of TUPE. There is no appeal against the way the Industrial Tribunal dealt with the individual cases in the light of the finding made as to TUPE. If the appeal succeeded then it is common ground that the claims of all the applicants against the Council would fail.

It seems to us that there are two principal issues raised in this Appeal on the arguments presented to us:

Were BIH carrying on a business of fire fighting and baggage handling which was capable of being transferred to IOSC? Under this head, IOSC raised the following issues:

(a) was the arrangement between the parties a labour only provision so that there was no business as such;

(b) was the business a separate and discrete part of BIH's business;

If yes, was there a transfer within the meaning of the Regulations as a result of BIH ceasing to be responsible for fire fighting and baggage handling and IOSC becoming responsible therefor?

In a conspicuously able argument, Mr Kempster submitted on behalf of IOSC as follows: [we summarise and thus do not do full justice to all his arguments]

TUPE applies only where there is a change in the legal or natural person who is responsible for the carrying on of the business. The issue is not simply to determine whether there has been a change in employer; the issue is whether there has been a transfer of an economic entity.

The question as to who is responsible for "carrying on the business" is not to be answered by deciding who is the 'owner'; it is more a question of 'ultimate control'.

On the facts, before the alleged transfer, Brintel's employees were under the control of Airwork and, ultimately, IOSC. Ultimate control did not transfer; it remained where it had always been. Therefore, there was no transfer when IOSC took over the fire fighting and baggage handling.

Alternatively, the Industrial Tribunal did not properly direct itself to the question of control.

Mr McMullen QC for the five employees submitted that the Industrial Tribunal had correctly examined the question of control and found that, although they were locally managed by the Airwork Airport Manager, an employee of Brintel was "in charge, he worked out the rotas and shifts, he did that with approval of the airport manager but subject to that approval in practical terms they operated as a separate entity". He submitted that "in reality this case is contracting-out in reverse and TUPE and the Directive apply with equal rigour."

It seems to us that the approach of the Industrial Tribunal to their Decision cannot be faulted.

For the purpose of this judgment we shall refer to the Transfer of Undertakings (Protection of Employment) Regulations 1981 SI 1981/1794, as amended by the Trade Union Reform and Employment Rights Act 1993, as 'the Regulations', and to Council Directive No 77/187/EEC, commonly called the Acquired Rights Directive, as 'the Directive'.

As at the date of this Judgment, in relation to the issue as to whether there has been a transfer of an undertaking within the meaning of Article 1(1) of the Directive, the European Court has interpreted the Directive in a number of different cases, of which the important ones are those conveniently summarised in Kenny v South Manchester College [1993] ICR 934, together with the subsequently decided case of Schmidt v Spar [1994] IRLR 302, a judgment of the European Court given on 14 April 1994. In addition, the Court of Appeal, in allowing the applicants' appeal from a decision of an Industrial Tribunal, upheld by this Court, in Dines v Initial Health Care Services Limited & Pall Mall Services Limited [1994] IRLR 336, reviewed a number of the decisions of the European Court.

We were told, during the course of argument, that it might be of assistance to practitioners, and we hope to Industrial Tribunals, if we attempted to summarise what we understand to be the principles to be derived from the various judgments to which we have referred. This judgment is concerned only with the question whether there has been a transfer of an undertaking or business within the meaning of Article 1(1) of the Directive, and accordingly of Regulation 3(1) of the Regulations. That question may contain within it two quite separate questions:

(a) has an undertaking been transferred

(b) has there been a transfer

within the meaning of the Directive [and of the Regulations]?

THE GENERAL APPROACH

Article 11 of the Directive says that it is addressed to the Member States. As the law stands at present, the Directive may be relied on directly only against the State or an organ or emanation of the State. What is an organ or emanation of the State is to be determined by reference to Foster v British Gas [1991] ICR 463, a decision of the House of Lords, and to Doughty v Rolls Royce Plc [1992] IRLR 126, a decision of the Court of Appeal.

However, whenever a tribunal is required to interpret the Regulations it should construe them "so as to accord with the interpretation of the Directive as laid down by the European Court of Justice if that can be done without distorting [their] meaning ....." per Lord Keith in Webb v Emo Air Cargo Limited [1993] ICR 175 at 186D.

It is important that an Industrial Tribunal should bear in mind, when setting about its task, that a purposive approach to the construction of the Regulations [and, thus, of the Directive] should be adopted. The purpose of the Directive has been stated to be:

"to ensure, so far as possible, that the rights of employees are safeguarded in the event of a change of employer by allowing them to remain in employment with the new employer on the terms and conditions agreed with the transferor."

In other words, broadly speaking, the purpose of the Directive is to ensure that in a transfer situation the employees follow their work, if the business, or part, to which they were assigned has been transferred.

Consistent with this purposive approach, Industrial Tribunals should bear in mind what Advocate General Sir Gordon Slynn said in his Opinion in the Spijkers case:

"A realistic and robust view must be taken and all the facts be considered."

A. BUSINESS

The language of the European court is to speak of an 'economic entity' rather than a business. A business implies an activity which is being carried on commercially for profit: that is not a requirement. The use of the word 'business' may well lead a tribunal into error, simply because it is associated with the idea that there must be a transfer of a business "as a going concern" with an emphasis on an examination of whether there has been a transfer of outstanding orders and goodwill and so on. Although the distinction between a 'business', an 'undertaking' and an 'economic entity' may be of no consequence, we would respectfully suggest that by using the language of the European Court, Industrial Tribunals will find it easier to put aside some of the old case law, which will be so familiar to them, but which has now been overtaken by more recent cases.

An economic entity is not always easy to define with any precision. It seems to us that, like a business, it describes a number of different constituent parts: assets, employees and activities. But three important points should be kept in mind:

An economic entity may well just comprise activities and employees. In the service industry tangible assets may be unimportant, or possibly, non-existent. Thus, for example, the economic entity may consist of the provision of services, where the real asset may be goodwill, or possibly just the right to provide the service in question. To apply a 'tangible asset test' would be wrong. Thus, the contracting-out of the provision of a canteen service to an outside contractor may fall within the Directive, even if the contractor provided the services from the transferor's premises to the transferor's employees at prices dictated by the transferor: Rask. The economic entity in question is the provision of a canteen service at the company's premises, carried on by and through the employment of canteen staff. When the company contracted out that service, the economic entity survived and was transferred to the third party so that those who did the work before were entitled to follow their work after the contracting-out. This would be so even where there was only one employee of the transferor engaged on the business which was contracted out: Schmidt.

The economic entity does not have to be the same before and after the transfer, in the sense that the business has been taken over and run by the transferee. The fact that there is no good will transferred because the old economic entity had come to an end and the alleged transferee started up an identical but new business will not, of itself, prevent the application of the Directive. In Spijkers, the transferor's activities, owning and running a slaughterhouse, had entirely ceased and there was no longer any good will in the business. The premises and certain goods were transferred and the transferee started up a new slaughterhouse business, having taken over none of the transferor's customers but all his employees bar Mr Spijkers. It was held that the fact that there was a break in time between the old business ceasing and the new one starting, and the lack of a transfer of goodwill, did not thereby prevent the application of the Directive [or the Regulations]. The slaughterhouse business [the economic entity] was still identifiably in existence after the alleged transfer, in the sense that its operation was actually being continued, or had been taken over by, the new employer, with the same or similar activities.

Industrial Tribunals should not be persuaded that there is one factor which is common to all cases where a transfer to which the Regulations apply has occurred. It is common for advocates to find that a particular feature was regarded as important in one case and seek to persuade another tribunal that its absence in another case is crucial. Such an approach is logically fallacious and is to be avoided. There can be no statement that in every transfer X will occur, so that in the absence of X there can be no transfer.

It seems to us that an Industrial Tribunal, when faced with the question "has there been a transfer of an undertaking within the meaning of the Regulations?" should start by identifying the economic entity in which the relevant employees had been employed before the alleged transfer. They may wish to inquire, first, about the activities comprised in the economic entity before the transfer: what is being done, what is going on. In seeking an answer, they will also want to identify the assets both tangible and intangible which were necessary to the performance of those activities. They should identify the employees who worked there and the jobs they did. They should then examine the position after the alleged transfer by looking at the same matters. One of the factors which an Industrial Tribunal will wish to take into account is the number of employees who were actually taken on by the transferee. That is not the only criterion to use, but where particular skills are required, the fact that many of the employees have been taken over may be an indication that the economic entity has retained its identity, so that one could say that it had been transferred. That is not to say that one cannot have a transfer to which the Regulations apply where the transferee has taken on none of the former employees.

In the light of that analysis, the Industrial Tribunal should ask itself whether, having regard to all the circumstances, the economic entity identified prior to the transfer can be found after the transfer. In every case the concluding question must be: has the economic entity retained its identity? Not, it is to be noted, has the same business continued in existence; nor has goodwill been transferred. In answering this question an Industrial Tribunal may find some help in seeking an answer to a different question: is the job previously done by the employee still in existence?

B. TRANSFER

If the economic entity has retained its identity then it will usually be plain that a transfer to which the regulations apply has taken place. As noted above, since the purpose of the Regulations is to enable the employees to continue in employment despite a change of employer, it would defeat the purpose if a series of technical rules were to be applied to the question whether a transfer has taken place. A transfer may take place in a number of different ways.

A relevant transfer may occur when there is a change in the identity of the person who is responsible for employing people in the economic entity, even if that change comes about without any arrangement relating to the business activities as such. Thus, if A leases premises to B so that B may carry on a business there, and then forfeits the lease and himself runs a similar business there, there has been no transfer of a business in a strict sense. However, having regard to the purposive test, one could say that the economic entity has retained its identity and is simply operated by different persons even though it could also be said that one entity has closed down and another started up. Employees whose employer has changed in these circumstances are equally deserving of protection as those employees whose employers have changed due to a change in ownership: Ny Molle Kro.

A transfer may take place in a two-stage process, as where A leases premises to B, who surrenders his lease, or ceases to be the lessee by effluxion of time, and A then grants a lease to C who carries on the same type of business as B. Here there is room for the application of the Directive [and the Regulations] so that the business carried on by B could be said to have to have been transferred back to the lessor and thence on to the second lessee. Provided that the business continued, in the sense that the economic unit retained its identity (restaurants and bars being run before and after the change) employees in that business should be entitled to follow their work and not be prejudiced by a series of transaction which merely changed the identity of the employer. Another example of a two-stage transfer is where A contracts out part of its business to B, and then after a further competitive tender, contracts it out to C, or wins back the work for itself. Technically, when B ceases to be the contractor, the business reverts to A and is then contracted-out again to C. Even though there has been no contract between B & C, nonetheless the Directive and Regulations may apply so that B's employees are transferred to C: Dines.

In other words, Industrial Tribunals might consider it preferable to concentrate more on the first question: has the economic entity retained its identity. If it has, it will often be the case that a change of employer has occurred through a transfer to which the Regulations apply. It is not the case that there can only be transfers where there have been discussions, a fortiori contracts, between the first employer and the second.

It would be impossible and undesirable to attempt to give guidance of such a nature that an Industrial Tribunal's decision on these difficult matters became merely mechanical. In every case, their good judgment will be required on what may be quite difficult facts. The purpose of this guidance is to try and provide a sign-post, possibly just a finger-post, towards an approach which a Tribunal might find useful to follow.

The decisive criterion for establishing whether there has been a transfer is whether the business in question retains its identity following the events alleged to constitute the transfer [the relevant events]. Retention of identity is indicated, inter alia, by examining whether the activities which were carried out before the relevant events are being carried out afterwards in the same or similar manner. In other words one should examine the similarity between the work done before and after relevant events and the identity of those carrying out the work: Rask.

Applying these principles to the present case, it seems to us that the fact that the business was 'labour only' does not prevent it from being an economic entity capable of being transferred. Secondly, that where there is a labour only contract, the economic entity is still capable of being transferred where the employer/transferor is the immediate beneficiary of the employees' services, even if the day to day control of them is enjoyed by the person to whom the services are to be provided. The employer is the person who profits from the economic activity being performed for the benefit of a third party. Third, the economic activity before and after the 'transfer' was identifiable. It does not have to be separate and discrete in the sense that it is conducted separately from any other business being carried on by the employer (whether before transfer or after transfer). It needs to be identifiable in the sense that the same work before and after the transfer is capable of being observed. Here, it is easy to see the same economic activity being carried out both whilst the fire fighting and baggage handling was contracted out to Brintel and after the contract was terminated, and the activity was then brought 'in-house' by IOSC. The same work was being performed on the same equipment and in the same premises [paragraph 27 of the Decision].

It seems to us quite clear that the business of providing fire and baggage handling services is an economic activity such as to constitute an undertaking within the meaning of TUPE. The owner of such a service might provide the necessary equipment, or the company to whom the services were provided might do so. In either event there is an economic activity. Thus, Brintel were engaged in performing an economic activity for IOSC which involved, substantially, the provision of services. The provision of services is an economic activity which is capable of being transferred. When IOSC terminated the arrangements at the end of January 1993, they carried on the same economic activity themselves. The jobs which the employees performed before and after the termination of Brintel's contract continued in existence: the fire fighting services still had to be performed, as did the baggage handling. The five employees should have been entitled to follow their work. The fact that IOSC directly or indirectly 'controlled' the way the work was performed does not prevent TUPE from applying. In Rask, Philips exercised considerable control over the canteens the operations of which they had contracted out to ISS. In this case, the employees were actually employed by Brintel and it was Brintel alone who had the power to dismiss them. Because the service was being provided to the airport owner, it is obvious that the way it was provided was under the immediate control of IOSC and/or their appointed airport managers. But that does not mean that the service provider, Brintel, were not carrying on an economic activity. The business was theirs. They made such profit as was there to be made out of it. They enjoyed the benefit of the exclusive right to provide that service so long as their contract with IOSC remained in existence. There was an economic entity capable of being transferred.

We agree with Mr McMullen that what happened in this case is the converse of contracting-out. There is no reason in principle or logic why a 'contracting-in' should be treated differently from a contracting-out. As Dines shows, a contracting-out of services may attract the operation of the Directive/TUPE; equally a contracting-in.

Accordingly, for the reasons given by the Industrial Tribunal, we are of the view that the appeal should be dismissed.